Deal or No Deal? What T-Mobile’s Proposed Acquisition of Sprint Could Mean for Bond Markets

T-Mobile’s proposed acquisition of Sprint currently hinges on whether the Department of Justice decides to allow the transaction or takes legal action to block it. The eventual outcome will have significant implications for the telecom sector and for the investment-grade and high-yield bond markets. Co-Head of Global Credit Research and Portfolio Manager John Lloyd and Credit Analyst Mike Talaga discuss potential outcomes.

Key Takeaways

  • Depending on whether the transaction is allowed to proceed, several different scenarios could unfold, each of which would carry different implications for bond markets.
  • In combination, T-Mobile and Sprint represent nearly 3% of the high-yield market. If the transaction is approved, T-Mobile’s intent to migrate to an all investment-grade balance sheet could create a technical tailwind in high yield as the companies’ combined debt shifts out of the high-yield universe and into investment grade.
  • Should the deal fall through, other consolidation activity could ultimately unfold for one or both entities. Alternatively, Sprint’s roughly $28 billion in debt – recently rated CCC by Moody’s – could return to stressed levels, which could impact the yield of the high-yield market as well as investors’ appetite for risk in a much lower-rated company.